Singapore rides (shaky) European market

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Singapore, a former British colony, is ultimately playing a reversed role in the history of Euro-Asian relations. Now its investments could contribute to underpin the struggling European countries that had forged those political and economic ties centuries ago

Temasek Holdings, Singapore’s state investment fund, announced on July 28 it had taken a stake in Italian fashion firm Monclear, its first relevant investment in Italy.

People look out from the observation tower of the Marina Bay Sands amongst public and private residential apartment buildings in Singapore, February 22, 2016. REUTERS/Edgar Su/File Photo

Temasek’s move reveals the expanding commitment to Europe of Singaporean investors, which is in line with a historical trend now viewing emerging countries as the financial lifeline of their former – and often cash-strapped – colonial masters.

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Temasek has a portfolio of some $185 billion. Earlier this year, it set up an advisory panel for investment in Europe based in London. The Old Continent accounts for 8% of its global exposure, while Asia represents over two-thirds of it.

It recently participated in a capital increase of $570 million in France’s asset manager Tikehau Capital Partners and channeled $110 million into British start-up venture Farfetch. In April 2015, it also bought a stake in the British lender Funding Circle.

In search of new markets

In general, Singaporean investors see Europe as an alternative market to reduce their dependence on the Asian continent, notably on China. In their eyes, European businesses have significant export potential to promising realities like Africa and Latin America, along with the willingness to increase presence in the Asia-Pacific region.

Economic ties between the European Union (EU) and Singapore are quite close. The European bloc is Singapore’s third-largest trading partner after China and Malaysia. In 2015, their combined trade amounted to $67 billion, with machinery, transport equipment, chemical products and manufactures the most traded goods.

The EU is also Singapore’s largest trading partner in services; their trade turnover in this field touched upon $40.3 billion in 2014, with services in the business, transport, financial and telecommunication sectors getting the lion’s share.

More importantly, while the EU is a key source of foreign direct investments for Singapore, the Asian city-state is one of the most relevant investors in the EU. At the end of 2014, the stock of Singaporean investments in Europe was worth $48.9 billion, meaning that Singapore is the second-largest Asian investor in Europe, behind Japan, and the biggest from the Association of Southeast Asian Nations (ASEAN).

As further proof that Singapore and Europe are steadily deepening their economic linkages, the city-state’s Ministry of Trade and Industry and EU institutions, on April 21, launched the Singaporean branch of the EU-promoted Enterprise Europe Network (EEN), a platform to boost two-way business between the European bloc and the rest of the world.

In essence, EEN Singapore is intended to help indigenous companies do business in the Old Continent.

Brexit’s impact

Yet, the soaring importance of trade and investment relations between Singapore and the EU member countries could be hampered by Europe’s current political and economic mess. Not least, the way Brexit – Britain’s exit from the EU – unfolds over the coming months will probably shape Singapore’s market strategy toward Europe down the line.

London is not among Singapore’s top tier trading partners, but Brexit could have a knock-on effect, capable of threatening the EU integrity. The worst scenario, the crumbling of the European single market, namely the end of free movement of goods, services, capital and people within Europe, would inevitably dampen the appetite of Singaporean companies for EU assets.

Europe’s protracted political volatility will in particular jeopardize the destiny of the EU-Singapore free trade agreement (EUSFTA), the first free trade deal signed between the EU and an ASEAN nation.

Sealed in 2012, the EUSFTA was expected to come into force by end-2015, but it still needs ratification by EU member states and approval by the EU Parliament, also pending a European Court of Justice ruling on the EU Commission’s competency to sign and ratify the trade deal.

The protectionist wave that is weakening the EU project, part of a more general euroskeptic and populist sentiment brewing through the continent, poses in fact a direct menace to all EU’s ongoing free trade negotiations, including the EUSFTA; and Britain’s departure from the European grouping – being London the bloc’s most vocal free-trade supporter – will only make this open wound fester.

Singapore, a former British colony, is ultimately playing a reversed role in the history of Euro-Asian relations. The modern city-state was built on institutions that Britain left behind it, as Lee Kuan Yew – the nation’s late founding father and long-time leader – used to say. Now, its investments could contribute to underpin the struggling European countries that had forged those political and economic institutions centuries ago.

It remains to be seen, however, whether EU’s deep rifts will allow the Europe-bound flow of Singapore’s capital to continue unimpeded and work for European stability and integration.

Emanuele Scimia is a journalist and foreign policy analyst. He is a contributing writer to the South China Morning Post and the Jamestown Foundation’s Eurasia Daily Monitor. In the past, his articles have also appeared in The National Interest, Deutsche Welle, World Politics Review, The Jerusalem Post and the EUobserver, among others.

Emanuele Scimia is a journalist and foreign policy analyst. He is a contributing writer to the South China Morning Post and the Jamestown Foundation’s Eurasia Daily Monitor. In the past, his articles have also appeared in The National Interest, Deutsche Welle, World Politics Review, The Jerusalem Post and the EUobserver, among others. He has written for Asia Times since 2011.